Mastercard’s head of emerging payments: SMEs will look to fintech without bank innovation

Microbusinesses and SMEs are looking at fintechs and new market entrants to provide their financial services as their existing banks have “never really treated them as business customers,” says Mastercard group head of acceptance and emerging payments, Scott Abrahams, but ground can be made up by major banks in the form of collaboration and innovation.

“Sometimes the SME bank is sat within a retail bank, sometimes it’s in with a commercial bank and to some extent it can be ran wherever it is. For many of our big partner banks, there are challenges delivering the full suite of business products, so we partner with them on what we can offer SMEs.”

A 2019 study from Fraedom found that 57% of SMEs want to move to an online/mobile banking business environment, while 95% of commercial clients who bank digitally in their personal lives expected to do so at work as well.

Abrahams thinks its “unfair” that customers find business banking a traditionally dull segment of the industry, “but that’s exactly what they do think”. He adds: “There is a lot of regulatory and political pressure on banks to do better. This naturally comes to bear much more on the likes of Lloyds, RBS and Barclays – in the short term – than it would on the likes of a Tide or Revolut.”

“The biggest pain point for the challengers right now is that they are dependent on incumbents in different ways, whether it be from a payments perspective with point of sale or card schemes in general,” says Abrahams. “However fast these partner businesses are working with [the fintechs] it’s never fast enough for them – they have a culture of agility.

“It’s the exact opposite pain point for the big banks,” he adds. “Nobody Is trying to do this stuff slowly, but it’s about seeing regulatory compliance as a competitive advantage, rather than taking a ‘I just don’t want to get fined’ approach. [At firms like Amazon] there does seem to be a culture of ‘we want to get it right first time, but we’re not going to penalise somebody if they get it wrong’. I hear that mantra all the time: ‘fail but fail fast and learn’. I don’t think that kind of culture exists in most businesses, certainly not big incumbent businesses.”

Catching up

There are sectors in which the major banks can make up ground, however. “There are services and sector that many of these fintechs may be less interested in serving but are still very important. That could be the financially excluded, the small, or even medium-sized businesses.”

Yet there’s “almost no point” for banks to try and match the fintechs stride for stride. “People talk about legacy banks being slow-moving oil tankers but if you upgrade the rudders and propeller, it will certainly turn much faster. If a major bank brings the whole weight of its organisation behind something it can certainly make an impact.”

For Abrahams, a solution can be found in collaboration. “It makes sense to find a model in which different solutions can be put together and create the most value for businesses. The fintechs that we work with which are the most outward-facing see [the major bank model] as a goal they are going after, but they are still having to go through the same regulatory environment, the same licensing, KYC and more. There are shared learnings there.

“Fintechs will continue to gain more and more market share of the consumer and day-to-day side of financial services. When it comes to the more challenging, more important decisions that we as consumers make, the major banks will be there, too. It’s the same for SME and business banking. Some of the corporate treasury relationships out there are more than 100 years old. They’re not going anywhere soon.”